equity partner with a builder

[Marina Wong]

I came across a builder who will be building in a high demand town near Boston. He needs an equity partner and will pay 50% return. I do not personally know the builder (I know him through a friend who knows him through his CPA). If I can check out that he is an experienced builder, what other info do I need to check? He has given me a couple of references. I talked to one who is his real estate agent and partner. He also gave me a list of houses he has built in the past 10 years. The equity that he raised will be for down payment of the purchase of the existing property (30% of the total cost) and the builder will get a construction loan for the remainder of the cost. He expects to finish the project in spring of 2015. The building is by right so no special permit needed. I can also check the ones on his project list and they all seem to be very high end and sold relatively quickly. He gave me a break down of the costs. I have never done this before so not sure if the return is typical (from his contract, it does not seem that the equity partner has any collateral). I can also check if the projected sale price of the final condos is reasonable or not.

Any advice is appreciated. Thank you.

[Account Closed]

I would be concerned that 50% sounds almost too good to be true, like he is desperate for funding and has no other options...which would not be the case for an established builder. If you do it, ask for a second position lien and a guaranty.